July 20, 2008

The Mortgage Bubble: The Diversity Cover Story

From my new VDARE.com column:

Traditionally, markets work by balancing greed and fear. Why was greed allowed to outrun fear so badly this time?

One clue comes from looking at the places with the sharpest decline in home prices, such as California, South Florida, Arizona, and Nevada. For example, the median price of homes sold in California last month was $328,000, down 31.5 percent from a ridiculous $484,000 in June 2007. Almost 42 percent of all homes sold in California were in foreclosure.

Why did the housing bubble get out of control in many heavily Hispanic regions?

Because many important people wanted it to.

A widely overlooked reason behind this economic disaster is that the politicians, real estate interests, and financiers told the public that they weren't speculating wildly on the insane hope of home prices rising forever. No, they were actually helping minorities share in the American Dream!

A percipient April 13, 2007 article in the nonprofit San Diego Voice by Kelly Bennett, Foreclosure Wave Said to Hit Latinos Hard, reported:

"This decade, a national push to increase homeownership among Latinos coincided with one of the longest, most dramatic periods of appreciation for home values. Latino mortgage and real estate professionals put forth aggressive outreach campaigns in the community, while lenders reached out to huge, untapped sections of the market by loosening qualifying standards. …

"Because a widened lending gate allowed many more Latinos and other minorities into the housing market than had entered previously, lawmakers and special interest groups championed the lenders' efforts to extend homeownership to those groups." …

Diversity served as the perfect politically correct excuse for rampant irresponsibility. It gave insiders a rationale for putting their thumb on the scales of the vast lending market in the sacred name of anti-discrimination. Who dared be so racist as to argue that blacks and Hispanics should get fewer loans per capita because they were less likely to pay them back? That's "the soft bigotry of low expectations."

Today's San Diego Union Tribune article sums up what will be the verdict of history on America in this decade:

"Typically, a severe housing slump is preceded by a recession and job losses, but that is not the case this time around, [John Karevoll of DataQuick] said. 'So now all us number crunchers are scratching our heads. This wasn't caused by a recession, but by stupidity.'"

But it's not just the fault of stupid borrowers, although a national policy of importing more of them by not enforcing the immigration laws clearly worsened the problem.

Stupidity extended all the way up the hierarchy—and that was intentional.

Political correctness makes people stupid, so diversity provided the ideal cover story for financial crime of the century.


My published articles are archived at iSteve.com -- Steve Sailer


Anonymous said...

Another moronic Bubble article.

Didn't I tell you to stay away from this topic?

Anonymous said...

Let's not forget the Community Reinvestment Act, strengthened by Clinton in 1995. I wonder when housing prices and construction really started taking off?


Anonymous said...

As far as I can see a borrower who takes out a 100% mortgage in a state where their liability ends once the bank forecloses is not being stupid, even if they over-pay. All the risks are with the bank; the borrower can walk away at any time.

kurt9 said...

What enrages me is how the FED is using inflationary monetary policy in an attempt to bail out the housing industry and its facilitators. This is an insult to those of us who save a substantial portion of our incomes and who did not participate in the housing bubble in any way, shape, or form.

This is outrageous. It is simply incomprehensible to me that anyone would consider this to be acceptable.

It is clear to me that the parasites (both upper and lower) have infested the American economy and body politic.

Anonymous said...

This issue isn't going away, and it may get worse. My fiancee is a successful real estate broker here in Orange County, CA. She attends industry meetings twice or more a week. She tells me that the "hot topic" in real estate sales circles is how the US must import more Asians, Hispanics, and other foreigners to get us out of the housing slump.

Anonymous said...

Requiring a substantial down payment isn't just a test of credit-worthiness; it also provides a margin of safety for lenders. If someone buys a $300k house with $60k down payment and a $240k mortgage and then defaults, the lender only needs to make $240k on the foreclosure sale to break even. That provides a margin of safety against a decline in the value of the house. No down payment, no margin of safety.


Anonymous said...

I heard Angelo Mozilo speak at the NEMBC a few years back. I recall him exhorting us on the need to lend to immigrant communities and that it would entail broadening the underwriting guidelines to work around cultural differences: boarder income, extended families under one roof, pooled deposits from the extended-extended families. Lenders were starting to roll out TIN loans at this time.

I couldn't recall the exact year but here's a Countrywide PR piece from September 2002: Emerging Markets, Growth Opportunities & Industry Leadership

I'm wondering if this is the conference where my boss leaned over and said, "what worries me is all the stupid money that's going to flood this industry.

former mortgage banker